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In the early hours of July 14, 2015, it was announced that the P5+1/EU3+3 and Iran had reached agreement on the Joint Comprehensive Plan of Action regarding Iran’s nuclear program (the “JCPOA”). This builds on the framework announced in April 2015. One of the key elements of the JCPOA will be extensive relief from the current EU and US sanctions against Iran. However, sanctions relief will be effective only upon Iran meeting its obligations regarding its nuclear program and, as such, the existing UN, US and EU sanctions remain in force.

The text of the JCPOA itself has been released and runs to over 100 pages, including various Annexes. We have summarized below the milestones for the implementation of sanctions relief and the key sanctions-related elements of the JCPOA which provide relief from the UN, US and EU regimes.

Next steps and key milestones

The following key dates are contemplated by the JCPOA:

Finalization Day (assumed to be July 14) – China, France, Germany, the Russian Federation, the United Kingdom, the United States, the High Representative of the European Union for Foreign Affairs and Security Policy, and Iran will endorse the JCPOA; the proposed UN Security Council resolution will be submitted to the UN Security Council.

Adoption Day (90 days after the endorsement of the JCPOA by the UNSC (or earlier by mutual consent)) – JCPOA participants begin making necessary arrangements and preparations for implementation of the JCPOA. Iran implements Annex I, Section M, Paragraph 66 & informs IAEA of intent to apply other provisions. The EU adopts a regulation to take effect on Implementation Day terminating certain sanctions. The US issues waivers and any other actions to terminate sanctions on Implementation Day. Discussions begin on Arak Heavy Water Reactor modernization. All parties discuss sanctions relief.

Implementation Day – simultaneous implementation by Iran of IAEA-verified nuclear related measures, EU and US sanctions relief, and UN Security Council sanctions relief.

Transition Day (8 years from Adoption Day (or upon IAEA report stating that all nuclear material in Iran remains in peaceful activities)) – Iran ratifies Additional Protocol; EU and US offer further sanctions relief.

UNSCR Termination Day (10 years from Adoption Day) – EU will terminate further sanctions; UN Security Council will terminate resolution endorsing JCPOA.

Separately from the JCPOA’s planned timetable, US Congress will have 60 days in which to review the JCPOA. This review period will run from the point at which the JCPOA is delivered to Congress (on or shortly after July 14).

UN sanctions

The JCPOA states that a UN Security Council (“UNSC”) resolution endorsing the JCPOA will terminate all provisions of previous UNSC resolutions on the Iranian nuclear issue when the International Atomic Energy Agency (the “IAEA”) verifies that Iran has implemented key nuclear-related measures described in the JCPOA (referred to as “Implementation Day”). This new UNSC resolution will also establish specific restrictions on Iran, as set out in Annex V. These include restrictions in relation to the transfer of proliferation-sensitive goods. The text of this resolution was not published with the JCPOA.

US sanctions

OFAC’s statement on the JCPOA states that US sanctions relief will be provided through the suspension and eventual termination of nuclear-related secondary sanctions, beginning on Implementation Day. The White House has published a summary of the main nuclear-related elements of the JCPOA, setting out the various requirements that Iran must meet.

OFAC has confirmed that the US government will publish detailed guidance on the JCPOA prior to Implementation Day. In the interim, all sanctions and sanctions relief currently in place will remain in effect (existing sanctions relief was introduced following the agreement of the Joint Plan of Action (the “JPOA”) in November 2013). The existing relief, and the proposed additional relief described below focus on the aspects of the sanctions which apply to non-US persons and non-US activity (the so-called “secondary sanctions”). The majority of primary sanctions (i.e. those applying to US persons or entities owned or controlled by US persons) will therefore remain in force.

Annex II to the JCPOA sets out the sanctions-related commitments by the US and states that the US commits to cease the application of, and seek such legislative action as may be appropriate to terminate, all “nuclear-related” sanctions identified by the JCPOA.

Annex II lists the various sanctions relief to which the US has committed and confirms that, beginning on Implementation Day, sanctions will not apply to non-US persons who do the following:

engage in activities, including financial and banking transactions, with the Government of Iran (the “GOI”), the Central Bank of Iran (the “CBI”), Iranian financial institutions and certain other specially designated nationals or SDNs;

provide underwriting services, insurance, or re-insurance in connection with activities consistent with the JCPOA, including in connection with activities in the energy, shipping and shipbuilding sectors of Iran, for the National Iranian Oil Company (“NIOC”) or the National Iranian Tanker Company, or for vessels that transport crude oil, natural gas, liquefied natural gas, petroleum and petrochemical products (“Oil and Gas Products”) to or from Iran;

are part of the energy sector of Iran;

purchase, acquire, sell, transport or market Oil and Gas Products to or from Iran;

provide to Iran support, investment, goods services and technology that can be used in connection with Iran’s energy sector, the development of its petroleum resources, its domestic production of refined petroleum products or petrochemical products;

engage in activities with Iran’s energy sector;

are part of the shipping or shipbuilding sectors of Iran;

own, operate, control or insure a vessel used to transport Oil and Gas Products to or from Iran;

operate a port in Iran or engage in activities with or provide financial services and other goods and services used in connection with the shipping/shipbuilding sectors of Iran or a port operator in Iran;

sell, supply, export or transfer (directly or indirectly) to or from Iran gold and other precious metals, or conduct or facilitate financial transactions or provide services for such transactions, including security, insurance and transportation;

sell, supply or transfer (directly or indirectly), graphite, raw or semi-finished materials such as aluminum and steel, coal, and software for integrating industrial processes to or from Iran in connection with activities consistent with the JCPOA; or

conduct or facilitate financial or other transactions for the sale, supply or transfer to Iran of goods and services used in connection with the automotive sector of Iran.

The US has also committed to: (i) the removal of designations as SDNs for the individuals and entities listed in Attachments 3 and 4 to Annex II (this list includes NIOC), (ii) ceasing the application of secondary sanctions for transactions with individuals and entities set out in Attachment 3, and (iii) unblocking of property and interests in property within US jurisdiction for individuals and entities set out in Attachment 3.

The US has agreed to seek legislative action to terminate sanctions on the acquisition of nuclear-related commodities and services for nuclear activities contemplated in the JCPOA following the earlier of eight years from adoption of the JCPOA or the IAEA reaching the conclusion that all nuclear material in Iran remains in peaceful activities.

As mentioned in our previous briefing, the JCPOA will be subject to review by Congress under the Iran Nuclear Agreement Review Act of 2015. Given the timing of the agreement, Congress will have a period of 60 days in which to review the JCPOA. The President can veto any Congressional legislation that will prevent successful implementation of the JCPOA, and has promised to do so. It is unclear whether there will be sufficient opposition in Congress to the JCPOA to permit Congress to override such a veto.

EU sanctions

The EU has released a joint statement by EU High Representative Federica Mogherini and Iranian Foreign Minister Javad Zarif. The existing suspension of EU sanctions against Iran following the JPOA will remain in force until January 14, 2016 to allow the EU to make the necessary preparations to implement the JCPOA.

The JCPOA’s sanctions relief provisions state that the EU and EU Member States commit to terminate all nuclear-related provisions of EU Regulation 267/2012 (as amended), Council Decision 2010/413/CFSP (as amended) and national implementation as required. With the exception of the existing sanctions relief, no EU sanctions will be suspended until Implementation Day. The effects of the planned lifting of sanctions will be to permit the following activities:

transfers of funds between EU person, entities or bodies (including financial and credit institutions) and Iranian persons, entities or bodies without the requirement for authorization or notification;

opening of new branches, subsidiaries or representative offices of Iranian banks in EU Member States;

establishment of new joint ventures, taking an ownership interest or establishment of new correspondent banking relationships by Iranian banks with EU banks;

provision of insurance or re-insurance to Iran, the GOI, Iranian persons entities or bodies, or persons, entities or bodies acting on their behalf or at their direction;

supply of specialized financial messaging services to any Iranian natural or legal persons, entities or bodies, including those listed in Attachment 1 to Annex II;

entering into commitments by EU Member States (i) to provide financial support for trade with Iran, including the granting of export credits, guarantees or insurance, and (ii) for grants, financial assistance and concessional loans to the GOI;

sale or purchase of public or public-guaranteed bonds to and from Iran, the GOI, the CBI or Iranian banks and financial institutions;

sale, supply, transfer or export of equipment or technology or technical assistance used in the oil, gas and petrochemical industries in Iran;

granting of any financial loan or credit to, the acquisition or extension of a participation in, and the creation of any joint venture with, any Iranian person engaged in the oil, gas and petrochemical sectors;

sale, supply, transfer or export of naval equipment and technology for shipbuilding, maintenance or refit to Iran/Iranian persons;

the provision of other shipping-related services including: (i) design or construction of cargo vessels or oil tankers, (ii) the provision of vessels designed or used for the transport or storage of Oil and Gas Products, (iii) the provision of flagging and classification services, and (iv) bunkering or ship supply services or other servicing of vessels;

access to EU airports of all cargo flights operated by Iranian carriers/originating from Iran and provision of fuel, engineering and maintenance services to Iranian cargo aircraft not containing prohibited items;

sale, supply, purchase, export, transfer or transport of gold, precious metals and diamonds and the provision of related brokering, financing and security services, to or from the GOI, Iranian public bodies and the CBI;

delivery of newly-printed or minted or unissued Iranian denominated banknotes and coinage to or for the benefit of the CBI;

sale, supply, transfer or export of graphite and raw or semi-finished materials such as aluminum and steel to any Iranian person, entity or body or for use in Iran, in connection with activities consistent with the JCPOA; and

sale, supply, transfer or export of software for integrating industrial processes to any Iranian person entity or body or for use in Iran, in connection with activities consistent with the JCPOA.

The EU has also committed to remove from the asset freeze and visa ban all individuals and entities listed in Attachment 1 to Annex II (this list includes NIOC).

The EU has confirmed that it will not introduce any new nuclear-related sanctions.

The EU will terminate all provisions of Regulation 267/2012 implementing proliferation-related sanctions, including related designations, after the earlier of eight years or the IAEA reaching the conclusion that all nuclear material in Iran remains in peaceful activities.

“Snap-back” provisions

The JCPOA contains a dispute resolution mechanism by which sanctions will “snap back” into place if a dispute is not resolved favorably. If either side believes that the commitments under the JCPOA are not being met, the issue can be referred to the Joint Commission (which will comprise representatives of each party to the JCPOA). The Joint Commission has 15 days to resolve the issue (which can be extended by consensus). After this consideration, if either party believes the issue was not resolved, either party may refer the issue to the Ministers of Foreign Affairs, who also have 15 days to resolve the issue (which can be extended by consensus).

After the Joint Commission has considered the issue, either party may request that the issue be considered by an Advisory Board consisting of three members (one appointed by each party and one independent member) who will provide a non-binding opinion within 15 days. The Advisory Board process can be performed in parallel with, or in lieu of, review by Ministers of Foreign Affairs. The Joint Commission has five days to consider the opinion of the Advisory Board. If this process has not resolved the issue, the complaining party may notify the UNSC that it believes the issue constitutes significant non-performance and/or cease performing its commitments under the JCPOA.

If the UNSC is notified of significant non-performance, it shall vote on a resolution to continue the sanctions lifting. If that resolution is not adopted within 30 days of the notification, then the provisions of the old UNSC resolutions will be re-imposed unless decided otherwise. If the UN sanctions snap back, they do not have retroactive effect on contracts signed prior to the snap back date, provided that the contracts are consistent with the JCPOA and UNSC resolutions. The precise mechanism by which snap-back will be achieved is not yet clear; however, press reports indicate that the parties’ intention is that no single permanent member of the UNSC will be able to veto the snap-back.

The JCPOA does not contain specific provisions relating to the snap-back of EU/US sanctions. However, the ability for complaining parties to cease performing their JCPOA commitments would suggest that parties could ultimately unilaterally re-impose domestic sanctions under the dispute resolution mechanism.

Possibility of further sanctions relief

The JCPOA leaves open the possibility that additional sanctions relief may be introduced since it provides a mechanism for Iran to consult with other JCPOA parties about other nuclear-related sanctions in the EU3+3 that prevent the full implementation of sanctions relief contemplated by the JCPOA.

Conclusions

The terms of the JCPOA provide for significant sanctions relief from Implementation Day. However, companies subject to EU and/or US sanctions should take note of the following important points:

from a US perspective, sanctions relief requiring legislative action will be subject to Congress’s approval of the JCPOA;

many of the US primary sanctions (applying to US persons) will remain in force. These impose a broad prohibition on transactions with Iranian persons and may, in particular, restrict deals by non-US persons in which US financial institutions or other US entities are involved to some extent;

not all Iran-related sanctions will be removed, for example those expressly related to human rights issues (such as the restrictions contained in EU Regulation 359/2011 (as amended)) will remain in force;

no relief will be introduced until Implementation Day, i.e. the point at which the IAEA verifies Iran’s fulfilment of its nuclear obligations.

Companies intending to do business in Iran should therefore continue to monitor the position closely and seek advice on any specific projects to ensure that they continue to comply with the revised sanctions framework.

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